Crusading with Capitalism: a Double-Edged Sword

The Mars corporation, creator of the popular Mars Bar, M&Ms, Snickers, Minstrels, and many other popular candy products, has launched an extensive project with the objective of ‘doing well while doing good’ in Indonesia, the world’s third largest supplier of cocoa.

Given existing connections to the extensive network of cocoa traders and smallholder farmers in Indonesia, Mars Inc. has been training sustainable cocoa-farming professionals to travel between the diverse communities of the Indonesian islands in order to train smallholders on how to improve their crops, and offering financing options for the purchase of effective equipment and materials. Smallholder farmers can pay back agents with high quality cocoa, evading trading losses from middlemen and ensuring a stable source of future income while maintaining the right to sell to other agents as well.

Since 2009, Mars Incorporated has partnered with the Swisscontact Corporation and the World Cocoa Foundation to sponsor the Peningkatan Ekonomi Kakao Aceh (PEKA) Project in order to increase productivity and sustainability of Indonesian cocoa farmers. Over two years, the US$6.8 million program trained over 12,500 famers, in order to increase productivity by 50% and increase the amount of cocoa beans meeting the Indonesian national standard from 35% to 75%.

Mars and Swisscontact have profited by ensuring a steady supply of high quality cocoa, and are actively developing campaigns to create a market for ‘luxury’ Indonesian chocolate, in order to enjoy the same reputation and price markups as Swiss chocolate or Belgian chocolate. Indonesian smallholder farmers are enjoying increasing profits from access to fair funding and improvements in their farming infrastructure, and from the increasing demand of European markets.

The PEKA program has proven to be so mutually beneficial that it has received support from the Indonesian government, with subprojects implemented by the World Bank. The model has been imitated by many other corporations operating in the developing world, and has been supported by many of the leading development organisations as a great success of corporate social responsibility (CSR) in encouraging international development.

The CSR doctrine is emerging as the new trend in development economics and policy, and focal point of both governments and the prominent international development banks. While nation-states still play vital roles in international organisations, non-state actors like multinational corporations are playing increasingly larger roles in international relations through their influence on international markets and development. Through economic integration and globalisation, these corporations can have significant influence on the domestic politics of the states in which they operate, and take on an inherently political agency in how they conduct business operations. Corporate social responsibility thus has significant appeal as a way to harness this new force of international power and target global issues such as environmental degradation, climate change, resource management, and poverty through responsible corporate practices and policies.

The link between multinational corporations and socio-economic development, however, is a dangerous one. Tales of exploitation in the developing world are myriad, often conflicting with the pleasant ideas of CSR and mutual gain. The development of textile industries in Bangladesh brought many out of extreme poverty and created a new job market and social progress for many female workers, but has also facilitated the creation of unsafe factories and led to the tragic and preventable deaths of hundred of workers in the collapses and fires of April and October 2013.

The OECD guidelines for multinational enterprises stipulate rules for responsible business practices abroad, which include obligations such as preserving environmental integrity, contributing to local communities, providing safe working conditions, and improving access to technology. While international organisations encourage corporations to abide by these guidelines, they are also assumed to self-regulate without any formal enforcement mechanism for good corporate citizenship.

In the case of the Mars Corporation, we have seen that business interests can be properly aligned with public interests; but is this always the case? Without this assurance, the increasing reliance of international development organisations on private sector operations is quite dangerous.

When operating in developing states, corporations have the ability to engage in ‘regulatory arbitrage’ in offering large amount of foreign direct investment, or threatening to remove it. Corporations have the advantage of easily shifting production operations to exploit the cheapest labour, as has been seen in the past decades with foreign capital shifting from Japan to China to Vietnam and now to Bangladesh. By promising cash inflows, corporations are often in a position to dictate their own rules of conduct, including tax and tariff exemptions. Many multinational corporations generate profits greater than the GDP of these developing states, and possess power commensurate to their wealth.

It is thus that I conclude that we must be hesitant in accepting this free-market solution to international development. While the mechanisms in place through the international development banks are certainly imperfect, relying on corporate social responsibility should not necessarily be seen as an alternative doctrine. Innovative and entrepreneurial spirit can certainly facilitate positive progress for certain communities in developing states, but the anecdotal evidence of these projects is often cosmetic.

A report published earlier this year by CSR Asia analysed the 80 largest corporations listed in Malaysia, Hong Kong, Singapore, and Indonesia. Of these 80, only 40 reported activities that qualify as CSR, and only 14 released information on their inputs or the results of their programs. Most information about the programs was purely anecdotal, which makes it quite difficult to discern if significant socio-economic development progress has actually been achieved through these CSR initiatives.

While the Mars project can claim to have had a profound influence on the 12,500 farmers involved in the PEKA project, and perhaps the economic development of their communities; Indonesia is a diverse nation of almost 250 million people and 18,307 islands struggling with corruption and parallel economies run by both the government and military. A western capitalist approach will not necessarily be successful; it is dangerous to assume even benevolent business interests will prove fruitful.

One Reply to “Crusading with Capitalism: a Double-Edged Sword”

While it is nice for a publically owned corporation to commit to Corporate Social Responsibile (“CSR”) activities, it must be remembered that its primary responsibility is to its owners (shareholders) and to maximize its earnings and return on investment. Too often the conscience of senior managemment influences corporate actions which do not meet these primary responsibilities.

The Mars corporation CSR activities discussed in this article, I believe are appropriate by all standards. Besides generating goodwill with the farmers and the country for Mars, this also helps to generate a broader and stable supply of cocoa, one of their primary raw materials. As such, it is an appropriate action.

Because of the primary responsibility of any public corporation described above, I agree with the author that some oversight of all CSR activities should be present. The question of course is oversight by what or whom, and how can that oversight be unbiased, fair, and free from corruption in evaluating all sides of an admittedly complicated situation.